What is the engine designers key competitive advantage or advantages? What is their IP?
Foxconn could ship iPhone X's out the back of the factory and sell them itself as "FoxPhone X"s. What stops Foxconn from doing that, that didn't stop the engine designers outsourcers?
What did the engine designers do wrong, that they should have done differently?
Their biz model is pretty good, as evidenced by the fact that they're still going strong despite the theft.
Their IP is primarily the engine designs for high power-weight ratios, reliability, manufacture-ability, etc. They sell to military and high-performance hobbyists.
Foxcon is probably stopped only by the threat of Apple's large legal dept and the likelihood that they'd lose their biggest contract, probably be put out of biz, executives possibly executed for making an international incident/harming the PRC (it's China...).
Basically, compared to a startup who is a small customer of a foundry/machine shop, Apple stops Foxconn with threat of enormous power.
IMO, what this biz should have done differently is found a way to build in US or MX with a more trusted manufacturer.
Or, if they had no choice but China, split the work between multiple unrelated suppliers so that no one supplier has any surplus or ability to create it. e.g., buy the materials at Source A, provide to Source B for with requirement to produce X cast parts, take those cast parts to machine shop w/req to produce X machined parts and ship all bad parts for inspection. Preferably ship each intermediate step to your own agent for inspection and shipping to next step, partly for verification, and partly to prevent supply chain from making knock-offs.
I know one of my Swiss suppliers had some of their material mfg in China just for the Asia market, I expressed skepticism, and they said, "oh, no, we're making sure they have nothing -- we send them only the pre-made chemicals ready to mix & pour, and their only job is to pour/cure/cut. They have no idea what they are mixing, and it'd be nearly impossible to reverse engineer".
In short, take more serious steps to protect IP.
For the reverse-engineering, you must first purchase some units, then produce your own accurate measurements & drawings, then find a manufacturer or setup your own factory, and then pay for tooling, all BEFORE you make unit #1. This is far more complex & costly than "simply purchasing one".
For the thieves, all of those expenses had already been paid by the original designer. They merely bought their units at the marginal cost of production.
This eliminated the startup cost for the competitor's business. The seed capital and IP investment they would have needed was replaced by the theft. They then bootstrapped the stolen knowledge and new profits into their own production.
And the oritinal company is surviving and outpacing the theiving Chinese competitor, disproving your contention that 'they have no business'.
More generally, there isn't any business where you wouldn't be able to compete if you could buy the finished product out the back door of the factory at the marginal cost of production. If we could buy Apple or Samsung products out the back door of their factory at the marginal cost of production, we could certainly make a lot of profit very fast. Yet I see no viable argument they have no business model.
Seriously, stop trying to justify theft.